Interest rates fell sharply on short-term Treasury...

Interest rates fell sharply on short-term Treasury securities, with rates on three-month bills dropping to their lowest level in a year. The Treasury Department sold $6.4 billion in three-month bills at an average discount rate of 5.12%, down from 6.84% last week. Another $6.4 billion was sold in six-month bills at an average discount rate of 5.98%, down from 7.21% last week. The rates were the lowest since three-month bills sold for 5.08% on Oct. 6, 1986, and six-month bills averaged 5.54% last July 13. The new discount rates understate the actual return to investors--5.27% for three-month bills, with a $10,000 bill selling for $9,870.60 and 6.27% for six-month bills selling for $9,697.70. In a separate report, the Federal Reserve said the average yield for one-year T-bills, the most popular index for making changes in adjustable-rate home mortgages, fell to 7.22% last week from 8.33% the week before.